PACRA maintains Entity Ratings of Prosperity Weaving Mills Limited

The ratings reflects Prosperity Weaving Mills Limited’s improving business profile in harmonization with better textile industry dynamics in recent times. The company’s revenues have taken a hit in previous years mainly due to price decline both in exports and local segments. Lately, revenues have started to pick up, benefiting from local demand. Recent re-imposition of custom duty & sales tax on cotton imports in FY19 budget, coupled with exclusion of tax rebate on yarn and greig fabric may put pressure on margin, if not modified. Leveraging has increased owing to debt-driven expansion. Meanwhile, support from core business margins is dependent upon efficiency gains via technology upgrades. Prosperity Weaving Mills intends to gradually build a sizable investment portfolio. This exposes the company to market risk as exhibited by recent volatility in stock exchange. Any significant decline in investments leading to losses, and eventually equity erosion, will impact the financial profile of the company. The management’s ability to manage this risk is critical. However, the assigned ratings derive comfort from Prosperity Weaving Mills association with Nagina Group.

The ratings are dependent upon sustained market position of the company. Moreover, the company’s ability to generate cash flows to fulfill its increasing financial obligations is critical. At the same time, prudent management of investment portfolio is important.

About the Entity
With installed capacity of 324 looms, Prosperity Weaving Mills Limited was incorporated in 1991 as a public limited company in Pakistan under the Nagina Group (NG). NG, through Directors (53.6%), its group companies Ellahi International (Pvt) Ltd (20.3%) and AHR (Pvt) Ltd (9.1%), retains the majority stake (84%). The remaining shareholdings (16%) rests with General public, Joint Stock companies and Foreign investors. Nagina Group – one of the oldest small-sized textile houses in Pakistan – comprises three listed public limited companies – and six private limited companies, all engaged in various aspects of Textile value chain.

Lack of segregation of governance and management as control of the latter vests with sponsoring family. However, the board is compliant with Code of Corporate governance with (NG) representative as Chairman of board. HR and Audit committees exists at board level.